Witness Ahmad Quran said Zakariya Daraghmeh, 37, went round a barrier of rocks and parked by the roadblock, near the city of Nablus, to wait for passengers, reports AP.
Quran said Israeli soldiers approached in a Jeep, and when they unslung their rifles, Daraghmeh left his taxi and started to run away.
The soldiers shot him as he ran, Quran said.
A doctor at Rafadiya hospital in Nablus said Daraghmeh died from a gunshot wound in his back.
Reuters reports Palestinian medics and witnesses as saying that Israeli patrol opened fire on Daraghmeh after he drove off a major road connecting the West Bank city of Nablus and the northern part of the occupied territory.
They said Daraghmeh was trying to reach his village of Toubas, close to Nablus, via an unpaved road.
The Israeli army said it was checking the report.